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Energy Secretary Signals Support for Revisiting U.S. Crude Export Ban

This article was written by Oilprice.com -- the leading provider of energy news in the world

U.S. Energy Secretary Ernest Moniz, speaking to the Platts Global Energy Outlook Forum in New York on Thursday, said that it might be time for the U.S. to reconsider its 40-year ban on crude oil exports. "Those restrictions on exports were born, as was the Department of Energy (DOE) and the Strategic Petroleum Reserve (SPR), on oil disruptions," Secretary Moniz told reporters at the event. The export ban, DOE, and SPR were all created in the wake of the 1973 Arab oil embargo when supply shocks hit the American economy hard and instilled fear in its politicians. Forty years later, the energy landscape looks far different and it is time the federal government takes a fresh look at the efficacy of its energy export policy.

To export crude oil a company must apply for an export license from the Department of Commerce (DOC). These licenses are notoriously difficult to attain and, with the exception of a handful of Canadian deals, few have been handed out. In 2013, the United States exported an average of 95,000 barrels of crude per day, with the lion's share of that destined for Canadian refineries. This is up from 67,000 barrels per day in 2012, and 23,000 barrels per day in 2007. The export ban exacerbates the price differential between WTI and Brent, making the former very attractive to those that have a chance to purchase it. For this reason, Canadian refineries are pushing hard to see licenses granted, allowing them access to high quality and comparatively cheap crude to bolster their margins. Analysts predict that these crude exports to Canada might soon reach 200,000 barrels per day under the current licensing system.

While Secretary Moniz indicated his support for rethinking the crude export ban, he assured the audience that he still supported the SPR, saying, "There certainly is a need for a reserve." The SPR serves as an insurance policy against significant supply disruptions, such as the 1973 shock that spurred its creation. Strategic oil reserves are also required by the International Energy Agency, which mandates that all member states maintain a reserve equal to at least ninety days of last year's import volume.

After Moniz made his statements, DOE Press Secretary Bill Gibbons emphasized, "As the Secretary made clear, this is an issue under the purview of the Department of Commerce, not the Department of Energy." While the power currently rests in the hands of the DOC, high profile statements of support like this serve to put the issue of energy exports back in the public spotlight. In the days that followed Moniz's statement, Senator Lisa Murkowski (R-Alaska) has signaled her intent to lead the push to end the ban with plans to release a white paper on the benefits and costs of crude exports soon. On the other side of the aisle, Senator Edward Markey (D-Massachusetts) said, "This oil should be kept here in America, to benefit our consumers and to reduce our dependence on imports from the Middle East."

Blake Clayton, adjunct energy fellow at the Council on Foreign Relations, says "Today's export restrictions run the risk of dampening U.S. crude oil production over time by forcing down prices at the wellhead in some parts of the country. Letting drillers reap extra profits from selling crude oil overseas, if the market dictates, would provide greater incentives for drilling, stimulating new supply." While lifting the export ban may have a small upward effect on prices at the pump, these effects would be more than offset by the gains made in upstream development.

The calls to end the export ban have been growing with America's newfound energy strength and only time will tell whether or not proponents of the ban's continued existence will be labeled reactionary protectionists or noble consumer advocates.